A Brief Update on the Tolkien/New Line Lawsuit - by Douglas C. Kane

A number of people have expressed interest in what the status of the Tolkien/New Line lawsuit is, and whether it still represents a threat to the Hobbit films. Because I have written about the subject before, Pieter asked if I would be willing to write a brief update on the situation now. I was happy to do so.

As most people know, New Line Cinema was sued by several plaintiffs, primarily two Tolkien trusts (represented by Christopher Tolkien and other members of the Tolkien family) and Harper Collins. The Plaintiffs' main claim is that New Line owes them millions of dollars in royalties for the Lord of the Rings films. For a detailed discussion of who the parties to the case are, what the claims that were asserted are, and what those claims are based on, go to Clearing up Misconceptions Regarding the Tolkien vs. New Line Lawsuit at theonering.net.

Since that was written, there have been a number of things that have happened. The most significant was that New Line succeeded in having the Plaintiffs claim for punitive damages stricken. That means that they can't be held liable for additional monetary damages beyond whatever it is decided that New Line owes pursuant to the Agreement. They also succeed in getting one of the Plaintiffs' claims -- a request to "reform" the original agreement to make it more clear that New Line owed the same percentage on The Two Towers as they do on the other films -- dismissed on the grounds that it was brought too late. However, the Plaintiffs main claim, that New Line owes them millions of dollars due to breach of contract and fraud, still continues. And, of greatest interest to most fans, the Plaintiffs' request to be granted the right to terminate New Line's rights to make future films, specifically the pending Hobbit films, also still continues.

In February there was a "case management conference" and at that time it was revealed that the parties had agreed upon a mediator, and that a mediation was going to be scheduled in March or April in an attempt to reach a settlement of the case. Nothing further was heard until last month. At that time, New Line filed two motions. The first motion requested that the jury trial scheduled to begin on October 19, 2009, be "vacated" and replaced with a "court trial" -- essentially a request that the case be decided in total by the judge, rather than by a jury. The second motion requested that if the motion to "vacate" was rejected, that the trial be "bifurcated" -- essentially split into two parts, with some issues being decided first by the judge (including the issue of whether the plaintiffs should be able to get the right to terminate New Line's rights to make future films if they win on the breach of contract claim) and then the rest being decided by the jury. In the papers that it filed in support of these motions, New Line revealed that the mediation had in fact taken place, and had not succeeded in resolving the case. The Plaintiffs opposed both motions. In their papers supporting that opposition, it was revealed that they now assert that New Line owed them $220 million dollars as of September 2007, instead of the $150 million dollars that they initially requested. The also made it clear that it was their position that there really was no issue to be decided by the judge on the question of whether they would be entitled to terminate New Line's rights to make future films; they assert that the the Agreements can only be interpreted as providing them with that right if it is found that New Line breached the Agreements. A hearing was held on the motions yesterday, June 2, 2009. The judge rejected the first motion to vacate the jury trial and replace it with a court trial entirely. She also rejected the second motion, but she indicated that she would be willing to reconsider bifurcating the case at a future time.

So, as things currently stand, the trial is still scheduled to begin on October 19, 2009. It is still scheduled to be a jury trial. And the possibility that the Plaintiffs will be given the right to terminate New Line's rights to make new Tolkien films, including the Hobbit films, is still very much in play. I obviously can't comment on the viability of the claims in the case. It appears from the outside that the Plaintiffs have a good argument that New Line does owe them significant sums of money, but without examining the thousands of pages of documents that have been produced in the case, it is impossible to say for sure (even with examining those documents, it might still be quite uncertain). As for the request to be given the right to terminate New Line's future film rights, I'm not convinced that it is as straightforward as the Plaintiffs are claiming. What the Agreements actually say is that the Agreements can only be subject to termination or rescission if a court of competent jurisdiction finds that the buyer breached its monetary obligations. Does it then follow that the Plaintiffs would automatically be granted the right to terminate or rescind if it is found that the buyer did breach? I'm not so sure. I think it is likely that the court would have more discretion than that, and I still think that even if it is found that New Line does owe significant sums, it is likely that the court will find that it is not "equitable" to allow the Plaintiffs to terminate New Line's rights to make the new films at this point. But that is all speculation on my part. All that can be said for sure at this point is that it remains a possibility.

Even if that possibility did materialize, that would not necessarily mean that the films would be stopped in their tracks. The question then would become whether the films could continue to proceed without New Line's involvement. And that, my friends, is to complicated a question for me to try to answer at this time. Hopefully it won't come to that. I suspect that the most likely resolution of all this will be a settlement between the parties on the eve of trial.